David Einhorn Blasts Bernanke In A Column That Cites The Simpsons And Jelly Donuts

Hedge fund super star David Einhorn isn't known for penning
columns or making TV appearances, so his column in the Huffington
Post today is a special treat — kind of like th jelly donuts he
writes about.

Einhorn's column,
'The Fed's Jelly Donut Policy' is a break down of the Federal
Reserves interest rate policy and how it effects all Americans
from the super wealthy to those in middle class households.

As you know, Fed Chairman Bernanke has basically promised to keep
rates low until 2014. Einhorn uses jelly donuts, the Simpsons,
and retirement planning to explain why that isn't spurring growth
for average Americans the way Bernanke wants it to.

A Jelly Donut is a yummy mid-afternoon energy boost. Two Jelly
Donuts are an indulgent breakfast. Three Jelly Donuts may induce
a tummy ache. Six Jelly Donuts -- that's an eating disorder.
Twelve Jelly Donuts is fraternity pledge hazing.

My point is that you can have too much of a good thing and
overdoses are destructive. Chairman Bernanke is presently
force-feeding us what seems like the 36th Jelly Donut of easy
money and wondering why it isn't giving us energy or making us
feel better. Instead of a robust recovery, the economy
continues to be sluggish. Last year, when asked why his measures
weren't working, he suggested it was "bad luck."

Einhorn has a better explanation, risk averse American savers are
being punished. Say Homer and Marge Simpson are saving for
retirement, he writes. Obviously Marge is in charge, and she
knows the stock market is volatile, so she's put the couple's
retirement in safe investments like CDs thinking that with
$200,000 she and Homer could retire comfortably.

Enter Bernanke. Low interest rates mean that Marge's investment
won't yield the way she'd planned and Homer will probably have to
keep working at the plant a little longer. He's not the only one,
though. Einhorn points out that 20% of Americans will have to do
the same thing.

And Bernanke's policy isn't just effecting Marge and Homer. Lisa,
a saver who could buy a house, has no reason to buy now because
she knows interest rates are staying low. Einhorn thinks interest
rates should be raised to push her into making that investment
already.

I know this isn't conventional thinking, and it certainly isn't
the way the Fed looks at it, but I believe that raising short
rates -- not to a high level, but to a still low level of 2 or 3%
-- would be much more conducive to both growth and stability.

The household sector balance sheet has a negative duration gap,
meaning that it holds proportionately more short-term floating
assets like bank deposits and money markets compared to its
liabilities, which are disproportionately long-term fixed
obligations including mortgages.

Raising rates would directly transmit income to families,
enabling them to spend more freely and boost the economy -- a
stimulus so to speak.